Financial institutions, such as banks, are critical to our global economy. A bank's primary function is to put their depositor's money to use by lending it out to others who can then use it to, for example, buy homes, businesses, or send their children to school. When a depositor places money in a bank, the money goes into a large pool along with other depositors' money, and the depositor's account is credited with the amount deposited. When the depositor writes checks or makes withdrawals, that amount is deducted from the account balance. The depositor earns interest on the balance of the account.
In the United States, the amount of money that a bank can lend is directly affected by the reserve requirement set by the Federal Reserve, which currently requires banks to hold 3 to 10 percent of the bank's total deposits in reserve. This amount can be held either in cash at the bank or in the bank's reserve account with the Federal Reserve Bank. Even though a law, such as the Federal Reserve Act, may require banks to keep a certain percentage of their money in reserve, if all depositors came to withdraw their money at the same time, there would not be enough. Consequently, if a bank fails, the depositor's money may be protected up to a certain limit as long as the bank is insured by, for example, the Federal Deposit Insurance Corporation (FDIC).
In performing their function, banks and other financial institutions provide a variety of financial services. Banks, for example, provide loans, issue certificates of deposit (CDs), provide credit card accounts, as well as other financial products. In particular, CDs bear a maturity date, a specified interest rate, and can be issued in various denominations. Technically, a CD is a promissory note made by a bank. CDs under $100,000 are called “small CDs” and CDs for more than $100,000 are called “large CDs” or “Jumbo CDs.” Almost all large CDs, as well as some small CDs, are negotiable. Because the money held in a CD is expected to stay on deposit until maturity, a bank may assess a penalty if the money is withdrawn early. Typically, the penalty is three to six month's interest. In addition to other deposits, CDs up to $100,000 may be governmentally insured by the FDIC, for example. While insured deposits may be desirable, many depositors may find a CD's early withdraw penalty problematic.
As stated above, other services provided by financial institutions may include providing credit card services. Generally, a credit card provider pays a merchant for goods or services when the goods or services are provided to the credit card user. The credit card user, however, does not pay the credit card provider for some time after the goods or services are provided. Having enough money to pay merchants prior to receiving payment from the credit card user may be problematic for financial institutions providing credit card services.
Thus, there is a need for improved systems and methods for managing an investment fund that allows a financial institution to raise money to paying debts. For instance, there is a need for such improved systems and methods allowing a credit card issuer to raise money for paying merchants. Furthermore, there is a need for such improved systems and methods to be based on CDs.